Monterey Credit Union in California is still waiting for permission to become a state-chartered bank.

The $220 million-asset institution's members approved the conversion in July 2014, and an application for federal deposit insurance was filed with the Federal Deposit Insurance Corp. two months later. Since then, Monterey has been stuck in limbo as bank regulators review its charter application.

Stewart Fuller, Monterey's chief executive, did not respond to a request for comment, but the credit union's lawyer, Michael Sadow of Silver Freedman Taff & Tiernan, said his client is eager to hear from the regulators.

"We're waiting to respond to questions once they are received," Sadow said.

A spokesman for California's Department of Business Oversight said Tuesday that the application remains under review, while an FDIC representative declined to comment.

Such a delay doesn't necessarily fall in a "highly unusual category," said Richard Garabedian, a lawyer at Shutts & Bowen who is not representing Monterey, though it could signal an issue with Monterey's use of private deposit insurance. While banks are required to carry federal deposit insurance, credit unions can opt for coverage from American Share Insurance in Ohio.

Private deposit insurance "presents a different calculus for the FDIC," said Garabedian, who added that he was unaware of another instance where a privately insured credit union had sought to convert.

Banking regulators are open to the idea of conversions, but Garabedian said he believes they have "raised the price of admission" by insisting that credit unions have healthier metrics — in terms of capital, profitability and asset quality — than what was required in past years.

By contrast, the now-defunct Office of Thrift Supervision, which oversaw most credit union conversions, "was much more willing to work with an institution that had some weaknesses," Garabedian said.

Credit union conversions were once fairly common, with more than 30 taking place from 1997 to 2007, but they have become rare occurrences since the financial crisis. The last conversion to take place occurred in July 2013, when the $2.2 billion-asset HarborOne Bank in Brockton, Mass., obtained its bank charter.

Of course, there has been a slowdown in new charters of all types, with only two de novo banks — Bank of Bird-in-Hand in Pennsylvania and Primary Bank in New Hampshire — receiving charters in the last two years. In comparison, four credit unions have received charters this year.

Persistent low interest rates and the high compliance costs have likely dampened the attraction of conversion for many credit unions — but not all. Garabedian said he is working with two credit unions that are thinking about making the switch.

Monterey's officials have said that one of the key drivers behind the decision to convert was a desire to do more business lending. In a December interview, Fuller said about a fifth of Monterey's members have a small-business connection, but credit unions' business lending cannot exceed 12.25% of total assets.

Monterey's application is one of two under consideration in California. A group associated with the private-equity firm Carpenter & Co. is seeking to start a commercial bank in Southern California.

"There are other folks who have approached us about applying, but nothing definite yet," Tom Dresslar, Deputy Commissioner for Policy and Planning at the California Department of Business Oversight, wrote in an email to American Banker earlier this month.